When The College Dorm Is Not Good Enough For Junior
While college dormitories are where most students live when they go away to school, some baby boomer parents are exploring another option: buying a residential property for their child to live in near the school.
Financial planners say that buying a property can be a viable alternative to the dorm room if parents know the real estate market in the college area and more importantly, know their child.
Patricia Raskob, a certified financial planner with Raskob Kambourian Financial Advisors, Ltd., Tucson, Ariz., purchased a 3-bedroom house when her son entered college.
Prior to buying a home, however, Raskob advises parents to think about how they feel about being a landlord, as well as “what is available and what is the cost.”
Know your children is another piece of advice that Raskob offers. Your children may be astute, she says, but do they know how to fix a leaky toilet?
Her son was handy and was able to maintain the property, Raskob adds.
Raskobs positive experience also was shared by all but one of the 8 clients (out of approximately 150) who have chosen to buy a property rather than put their children in dormitories, she says.
In that one instance roughly 8 years ago, according to Raskob, the Orlando area of Florida was experiencing a real estate slump and the family, including the child, was moving to another part of the country. They did not have the time to wait until the market turned around, Raskob continues.
The idea of buying a property for your college student can work, says Jim Holtzman, a CPA with Legend Financial Advisors, Pittsburgh, but “generally speaking, I dont get too excited about this type of proposal.”
There are a lot of questions that need to be answered first before a decision is made about purchasing a residential property, he continues.
Chief among them is whether it is realistic to expect a student to maintain a property purchased by parents, Holtzman says. Will the student also be able to maintain his studies? “There is a rate of return there also,” he adds.
Of course, a property manager can be hired, but then that expense hits the bottom line, according to Holtzman.
Plans to maintain the property must also be made if a child returns home for break and to make sure that any renters pay bills and pay them in a timely manner, he continues. And, the possibility of a vacancy rate needs to be considered, he adds. “It can become a financial issue of cash flows,” Holtzman says.
But if these questions can be answered, the right property in the right area can offer appreciation, he says. If a college is in a newer area that is developing then there can be a sufficient run up in value to make it possible to turn a profit in a 4-year period, Holtzman says. But if it is in a more established area, then the chances of the property escalating greatly is less likely, he continues.